Bullish Futures Top 1 Million Contracts for First Time in ’12: Commodities

Bullish commodities futures rose
above 1 million contracts for the first time in five months as
U.S. growth prospects improved and Goldman Sachs Group Inc.
predicted further price gains.

Hedge funds and money managers boosted combined net-long
positions across 18 U.S. futures and options by 7.3 percent to
1.03 million contracts in the week ended Feb. 21, Commodity
Futures Trading Commission data show. That’s the highest since
Sept. 13. Bullish wagers on gold climbed to a five-month high,
and bets on crude oil rose to the most since May.

The Standard & Poor’s GSCI Spot Index of 24 commodities
capped its biggest weekly increase of the year last week,
touching a nine-month high on Feb. 24. U.S. consumer confidence
rose more than forecast in February, and new-home sales topped
estimates. Goldman reiterated an “overweight” recommendation
on raw materials on Feb. 22.

“The U.S. is showing better signs of self-sustaining
economic activity,” said Michael Strauss, who helps oversee
about $27 billion of assets as chief investment strategist at
Commonfund in Wilton, Connecticut. “What we see is reasonable
global growth this year, which should be supportive of gains in
overall commodities.”

Global Rally

Stocks and commodities advanced after euro-area finance
ministers approved 130 billion euros ($175 billion) in aid for
Greece last week to avert a default. China, the world’s biggest
consumer of everything from pork to soybeans, said Feb. 18 that
it will cut reserve requirements for banks to spur growth.
German business confidence rose more than economists forecast to
a seven-month high in February, the Munich-based Ifo institute
said on Feb. 23.

The S&P GSCI gauge climbed 3.9 percent last week, the
biggest gain since Dec. 23. The MSCI index of equities rallied
0.9 percent, with about $557.7 billion added to the value of
global stocks. The yield on 10-year Treasuries rose 2.6 basis
points, or 0.026 percentage point, to 1.98 percent, according to
Bloomberg Bond Trader prices.

Fifteen of the raw materials tracked by the S&P GSCI
climbed last week, led by gains in industrial metals. Lead
surged 8 percent, aluminum advanced 7.5 percent, and zinc rose
6.9 percent. The gauge fell 0.5 percent to close at 711.62 in
New York.

Contracts Outstanding

The number of contracts outstanding across the 24
commodities tracked by S&P rose 1 percent last week, boosting
this year’s increase to 14 percent, exchange data show. Funds
have lifted wagers for five straight weeks, the longest stretch
since December 2010, CFTC data show.

Investors added $571 million to commodity funds in the week
ended Feb. 22, according to data from Cambridge, Massachusetts-
based EPFR Global, which tracks money flows. Gold and precious-
metals inflows totaled $210 million, said Cameron Brandt, the
director of research.

“The latest commodity flow numbers is catch-up with
previous positive trends,” Brandt said. “People are moving
into them based on a string of relatively positive numbers.
Whether those will continue to carry weight is a little more
questionable.”

While Goldman forecasts more gains, the bank lowered its
12-month prediction for commodity returns to 12 percent from 15
percent after prices rallied, analysts led Jeffrey Currie said
in a report on Feb. 22.

Economy at Risk

Crude oil exceeded $109 a barrel for the first time in
almost 10 months on Feb. 24. Higher energy costs may put the
U.S. recovery at risk, David Rosenberg, the chief economist at
Gluskin Sheff & Associates Inc., said last week in a radio
interview on “Bloomberg Surveillance” with Tom Keene and Ken
Prewitt.

The U.S. will probably grow 2.2 percent this year, up from
1.7 percent in 2011, according to the median of 79 economist
estimates compiled by Bloomberg. Applications for jobless
benefits in the week ended Feb. 18 held at a four-year low,
Labor Department figures showed on Feb. 23.

Money managers lifted their bullish crude bets by 11
percent to 259,162 contracts, the CFTC data show. That’s the
highest since May 3. Futures for April delivery dropped 1.1
percent to settle at $108.56 on the New York Mercantile Exchange
today.

Gold Bets

Bullish gold wagers climbed 9.9 percent to 179,132
contracts, the highest since Sept. 13, the government said.
Holdings in exchange-traded funds backed by the metal rose to a
record 2,396.9 metric tons on Feb. 24, data compiled by
Bloomberg show.

A measure of 11 U.S. farm goods showed speculators
increased bullish wagers by 6.6 percent to 483,576, the highest
since the week ended Nov. 8. Soybean holdings rose 20 percent to
96,971, the third straight gain and the highest since Sept. 20.
Bets on rising cattle prices advanced 11 percent to 97,506
contracts, a 14-week high.

U.S. soybean inventories before the 2013 harvest may drop
25 percent as exports climb to a record, the Department of
Agriculture said in a report on Feb. 24.

Cattle futures extended a rally to an all-time high of
$1.315 a pound on Feb. 22 in Chicago. U.S. feedlots trimmed
purchases of young cattle more than forecast last month as fewer
animals were available for sale because of a shrinking herd, the
government said Feb. 24.

“Investors are feeling better about the economy,” said
Steve Shafer, the chief investment officer at Oklahoma City-
based Covenant Global Investors, which has about $315 million in
assets under management. “You’ve got supply constraints with a
rising appetite. That creates a supply-demand gap that results
in higher prices.”

To contact the reporter on this story:
Elizabeth Campbell in Chicago at
ecampbell14@bloomberg.net

To contact the editor responsible for this story:
Steve Stroth at
sstroth@bloomberg.net